Mamaearth’s IPO – A Beautiful Dream or Disaster?

Mamaearth’s IPO – A Beautiful Dream or Disaster?

Mamaearth is an Indian company engaged in selling Health, Wellness and Fitness products.  The company was founded by Varun and Ghazal Alagh in the year 2016 and is headquartered in Gurgaon. It grew exponentially and reached a net worth of INR 115 crore in just four years.

Mamaearth is the flagship brand of Honasa Consumer Limited, which started as a digital-first consumer brand. Its other brand portfolio includes brands such as BBlunt and Aqualogica. The brand is planning to launch an IPO and has filed the Draft Red Herring Prospectus (DHRP) with the Securities and Exchange Board of India (SEBI) on December 20, 2022.

IPO Details of Mamaearth
The Grey Area
How an IPO Is Valued or Priced?
IPO Valuation of Mamaearth

IPO Details of Mamaearth

The company has proposed an IPO worth INR 2900 crores.  The IPO will consist of a fresh issue of shares worth INR 400 crores and an Offer For Shares (OFS) of approximately 46.8 million shares. The funds raised through the IPO will primarily be used for improving brand visibility and advertising as well as opening exclusive brand outlets.

The company’s founders Varun and Ghazal Alagh along with other investors like Sofina, Fireside Ventures, Evolvence India, Stellaris and angel investors like Kunal Bahl, Rohit Bansal, Rishabh Mariwala and actor Shilpa Shetty will sell a part of their stakes in the company through the OFS.

Mamaearth's Shareholding Pattern and the Angel Investments in the Startup
Mamaearth's Shareholding Pattern and the Angel Investments in the Startup

The list below gives a detailed view of the angel investments in Mamaearth.

Angels Invested YOI Valuation
Suhail Sameer ₹15 lakh 2016 $2 million
Vijay Nehra ₹15 lakh 2016 $2 million
Shashank Shekhar ₹15 lakh 2016 $2 million
Kunal Bahl ₹69.6 lakh 2017 $5.16 million
Rohit Bansal ₹69.6 lakh 2017 $5.16 million
Shilpa Shetty ₹75.1 lakh 2018 $4.85 million

The Grey Area

There are several concerns floating on social media regarding the high valuation of Mamaearth.  The company which was valued at INR 120 crore in January 2022, is seeking a higher valuation of INR 300 crore through its IPO.  This target valuation is almost a thousand times higher than its registered profits.

Mamaearth's Financials in FY22
Mamaearth's Financials in FY22

The company does not have a consistent record of profitability.  While it posted a revenue of INR 932 crores with a net profit of INR 14 crores at the end of FY22, it registered a loss of INR 1332 crores in FY21 and INR 428 crore in FY20.  In the six months ending September 2022, Honasa Consumer posted a revenue of INR 722 crore with a net profit of INR 3.6 crore.  Apart from this, Honasa has also recorded a high advertising spend.  In FY22, the company spend approximately INR 391 crore on advertising, which is 40% of its revenue.  It has spent a similar percentage of its revenue on advertising in FY21, FY20 and the six-month period that ended in September 2022.

All this information has led to a lot of speculation about the price MamaEarth will set for its IPO.  

Sunil Damania, Chief Investment Officer of MarketsMojo says – “We doubt that management will go ahead with the higher price because there has been a lot of backlash on social media, especially given the amount of money Mamaearth is asking; whether you look at the market cap to sales ratio or the price to earnings ratio, which appears to be a little high.”

Tech stocks globally are witnessing a downturn and many IPOs in the recent past have failed to maintain their initial high valuations, falling significantly since their listing.  Some prime examples include Zomato, Paytm and Nykaa.

Sunil Damania continues – “Something similar could occur if Mamaearth opts for such a high valuation.  However, these are all speculative at the moment because neither the merchant banker nor the company has confirmed that they will proceed with this pricing.”
Anirudh Damani, Founder of Artha Group has a different take.  He says – “I am jittery about all IPOs where more than 25% of the money getting raised does not go to the business i.e., it is an OFS from early investors and celebrity backers of the platform.  I have understood that almost 80% of this IPO will go towards OFS which does not bode well for public market investors.  It will be challenging to see any upside in the stock price with so many questions on super-premium valuation that will primarily provide exits to current shareholders.”

How an IPO Is Valued or Priced?

An Initial Public Offering or IPO listing is when a private company issue shares publicly in the stock market for the first time.  This is done either to raise more funds for expansion or to recover from losses or debts.  An audit is conducted for the company where all data regarding the company’s financials is carefully scrutinized.  This data includes the company’s assets, liabilities, revenue generation, market performance, etc.

There are several methods in the IPO valuation process to define share value.  These methods are

  1. Relative Valuation through which the company’s share value is measured by considering the value of similar companies
  2. Absolute Valuation that measures the strength and financial status of the company
  3. Discounted Cash – Based Valuation that analyses expected cash flows, future performance, investment, potential revenue sources and more
  4. Economic Valuation considers various parameters like the business’s residual income, debts to be paid, assets value owned and liabilities, risk-bearing potential, etc.
  5. Price-to-Earning Multiple Valuation that compares the company’s market capitalization to its annual income.

Mamaearth: Bringing Toxin-Free, Natural Skin Care Products To India
Ghazal Alagh and Varun Alagh founded Mamaearth in 2016. Read on to know more about Mamaearth’s success story, business model, funding, and other aspects.

IPO Valuation of Mamaearth

There are various factors that affect the price of shares offered in an IPO.  In relation to Mamaearth, these factors are:

Financial Performance Over the Past Few Years

Mamaearth’s financial performance has been erratic and it has not been in sustainable stable growth.

Most of the tech stocks have failed to maintain their high valuations and have seen sharp declines in the recent past.

Number of Stocks Issued by an IPO by a Particular Company

The biggest concern is the OFS offer which is being seen as an exit strategy by many of the promoters of the company.

Company’s Potential Growth Rate

The amount raised from the IPO will be used to increase brand awareness and advertising but there is no clear direction.

Company’s Business Model

Mamaearth is primarily a digital-first company.  Its Return on Ad Spends (ROAS) has not improved in the last three years suggesting it has very few returning consumers.

Recent Market Price of Companies Listed on the Stock Exchange

Tech companies like Paytm, Zomato and Nykaa have all failed to sustain their stock prices.


MamaEarth is showing great courage by announcing an IPO at a time when tech stocks are witnessing a global slump. However, rising digital penetration, high disposable income, as well as growing awareness in the beauty and personal care segment give the company room for growth and expansion in the future.


What is an IPO?

IPO [Initial Public Offering] takes place when a private company issues share publicly for the first time in the stock market. Once the company declares an IPO, the stocks no longer remain private and are collectively owned by all shareholders.

What are the Factors Affecting IPO Valuation?

Here are several major factors that affect the price of the shares offered in an IPO

  • Company’s financial performance over the past few years
  • Share market trends
  • Number of stocks issued in an IPO by a particular company
  • Company’s Potential Growth Rate
  • The Recent Market Price of Companies Listed on the Stock Exchange

How can you tell if an IPO is good or not?

Thoroughly review the company's business model, management credentials, and historical performance. A good starting point when evaluating the best IPO to buy is the red herring prospectus. It contains most of the information you need to evaluate the company.

Is Mamaearth a private company?

Yes, it is a Gurugram-based D2C babycare and skincare unicorn. Mamaearth could be converted into a public company as it readies for an IPO.

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